Head Start of Greater Dallas, Inc. Dallas, Texas. Financial Statements and Supplementary Information Year Ended February 28, 2013

Dallas, Texas Financial Statements and Supplementary Information Year Ended February 28, 2013

Financial Statements and Supplementary Information Year Ended February 28, 2013 Table of Contents Independent Auditor s Report... 1 Financial Statements Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows... 5 Notes to Financial Statements... 6 Supplementary Information Schedule of Program Activity... 13 Notes to the Schedule of Program Activity... 15 Schedule of Expenditures of Federal, State, and Local Awards and List of Programs... 16 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters... 17 Independent Auditor s Report on Compliance For Each Major Federal Program and on Internal Control Over Compliance... 19 Schedule of Findings and Questioned Costs... 21

Independent Auditor s Report Board of Directors Head Start of Greater Dallas, Inc. Dallas, Texas Report on the Financial Statements We have audited the accompanying financial statements of Head Start of Greater Dallas, Inc. (a nonprofit organization), which comprise the statement of financial position as of February 28, 2013, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Head Start of Greater Dallas, Inc. as of February 28, 2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Program Activity, Schedules A-1 to A-2, and the Notes to the Schedule of Program Activity, as well as the Schedule of Expenditures of Federal, State, and Local awards and List of Programs, Schedule B, which includes the requirements of U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and the State of Texas Single Audit Circular (the "Circular"), issued by the Texas Office of the Inspector General, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Report Issued in Accordance with Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 20, 2013, on our consideration of Head Start of Greater Dallas, Inc. s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Head Start of Greater Dallas, Inc. s internal control over financial reporting and compliance. Wipfli LLP Madison, Wisconsin September 20, 2013 2

Statement of Financial Position February 28, 2013 Assets Current assets: Cash $ 715,903 Grants receivable 201,795 Accounts receivable 19,164 Prepaid expenses 134,069 Total current assets 1,070,931 Long-term assets: Property and equipment, net 13,444,853 Loan origination fees, net 34,197 Total long-term assets 13,479,050 TOTAL ASSETS $ 14,549,981 Liabilities and Net Assets Current liabilities: Current maturities of notes payable $ 272,274 Accounts payable 438,005 Accrued expenses 135,831 Accrued payroll 341,521 Grant funds received in advance 892,939 Total current liabilities 2,080,570 Long-term liabilities: Notes payable 6,731,785 Total long-term liabilities 6,731,785 Total liabilities 8,812,355 Net assets: Unrestricted 5,678,213 Temporarily restricted 59,413 Total net assets 5,737,626 TOTAL LIABILITIES AND NET ASSETS $ 14,549,981 See accompanying notes to financial statements. 3

Statement of Activities Year Ended February 28, 2013 Temporarily Unrestricted Restricted Total Revenue and support: Grant revenue $ 39,096,468 $ 7,365 $ 39,103,833 Other income 17,587 0 17,587 Interest income 245 0 245 In-kind contributions 6,049,327 0 6,049,327 Net assets released from restriction through satisfaction of program restrictions 86,183 ( 86,183) 0 Total revenue and support 45,249,810 ( 78,818) 45,170,992 Expenses: Program activities: Child education 38,153,329 0 38,153,329 Food programs 1,714,793 0 1,714,793 Community 78,156 0 78,156 Discretionary 952,866 0 952,866 Total program expenses 40,899,144 0 40,899,144 Supportive services: Management and general 4,582,441 0 4,582,441 Total expenses 45,481,585 0 45,481,585 Change in net assets ( 231,775) ( 78,818) ( 310,593) Net assets - Beginning of year 5,909,988 138,231 6,048,219 Net assets - End of year $ 5,678,213 $ 59,413 $ 5,737,626 See accompanying notes to financial statements. 4

Statement of Cash Flows Year Ended February 28, 2013 Increase (decrease) in cash: Cash flows from operating activities: Change in net assets ($ 310,593) Adjustments to reconcile change in net assets to net cash provided by operating activities: Donated equipment ( 21,000) Depreciation and amortization 1,006,698 Changes in operating assets and liabilities: Grants receivable 11,748 Accounts receivable ( 18,141) Prepaid expenses ( 44,628) Accounts payable 35,941 Accrued expenses ( 20,956) Accrued payroll ( 74,768) Grant funds received in advance 197,212 Net cash provided by operating activities 761,513 Cash flows from investing activities: Capital expenditures ( 484,035) Net cash used in investing activities ( 484,035) Cash flows from financing activities: Payments on notes payable ( 304,546) Net cash used in financing activities ( 304,546) Change in cash ( 27,068) Cash - Beginning of year 742,971 Cash - End of year $ 715,903 Supplemental schedule of other cash activity: Interest paid and expensed $ 393,770 See accompanying notes to financial statements. 5

Notes to Financial Statements Note 1 Summary of Significant Accounting Policies Nature of Operations Head Start of Greater Dallas, Inc. (HSGD) is a not-for-profit corporation organized in 1988 under the laws of the state of Texas. HSGD was formed to perform charitable or educational services, specifically to provide support or relief to the impoverished without regard to the beneficiaries ability to pay. HSGD receives the majority of its support from the U.S. Department of Health and Human Services (DHHS), under an annual grant, to operate the Head Start program in Dallas County. Services provided by HSGD include child development, social, health, nutrition, and special needs services to families enrolled in the Head Start program. HSGD has delegated a portion of the program services to two other nonprofit agencies. HSGD s federal identification number is #75-2247281. Basis of Presentation The basic financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. Classification of Net Assets Net assets and revenue, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of HSGD and changes therein are classified and reported as follows: Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations or where donor-imposed stipulations are met in the year of the contribution. Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that may or may not be met, either by actions of HSGD and/or the passage of time. When a restriction expires, temporarily restricted net assets are transferred to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Permanently Restricted Net Assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by HSGD. Generally, the donors of these assets permit HSGD to use all or part of the income earned on any related investments for general or specific purposes. Currently, HSGD does not have any permanently restricted net assets. Revenue and Expense Recognition/Grant Funds Received in Advance Contributions are recognized when the donor makes a promise to give to HSGD that is, in substance, unconditional. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and nature of any donor restrictions. When a restriction expires, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statement of activities as released from restrictions. 6

Notes to Financial Statements Note 1 Summary of Significant Accounting Policies (Continued) Revenue and Expense Recognition/Grant Funds Received in Advance (Continued) Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Grants are either recorded as contributions or exchange transactions based on criteria contained in the grant award. A. Grant Awards that are Contributions Grants that qualify as contributions are recorded as invoiced to the funding sources. Revenue is recognized in the accounting period when the related allowable expenses are incurred. Amounts received in excess of expenses are reflected as grant funds received in advance. B. Grant Awards that are Exchange Transactions Exchange transactions reimburse based on a predetermined rate for services performed. The revenue is recognized in the period the service is performed. In-Kind Contributions HSGD has recorded in-kind contributions for space and professional services in the statement of activities in accordance with financial accounting standards. These accounting standards require that only contributions of services received that create or enhance a nonfinancial asset or require a specialized skill by the individual possessing those skills and would typically need to be purchased if not provided by donation be recorded. The requirements of these financial standards are different than the in-kind requirements of HSGD s grant awards. HSGD received contributions of nonprofessional volunteers, during the year with a value of $4,209,134 for its Head Start program which are not recorded in the statement of activities. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset. HSGD capitalizes equipment purchased with a cost greater than $5,000 and a useful life of more than two years. Leasehold improvements are depreciated over the lease term. Donations of property and equipment are recorded as support at their estimated fair value. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. If there are no donor restrictions regarding how long a donated asset must be maintained, HSGD reports expirations of donor restrictions when the donated assets are placed in service. HSGD reclassifies temporarily restricted net assets to unrestricted net assets at that time. 7

Notes to Financial Statements Note 1 Summary of Significant Accounting Policies (Continued) Property and Equipment (Continued) Property and equipment purchased with grant funds is owned by HSGD while used in the program for which it was purchased or in other future authorized programs. However, the various funding sources have a reversionary interest in the property and equipment purchased with grant funds. Its disposition, as well as the ownership of any proceeds there from, is subject to funding source regulations. The net book value of the grant-funded property and equipment is $13,363,698. Loan Origination Fees Loan origination fees costs related to long-term debt are amortized over the life of the related debt using the straight-line method. Loan origination fees as of February 28, 2013, were $138,949, with accumulated amortization of $104,753. Amortization expense was $27,790 during 2013, and is included with depreciation and amortization. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Tax Status HSGD is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Uncertain Tax Positions HSGD is required to assess whether it is more likely than not that a tax position will be sustained upon examination on the technical merits of the position assuming the taxing authority has full knowledge of all information. If the tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. HSGD has determined there are no amounts to record as assets or liabilities related to uncertain tax positions. Federal returns for the tax years ended 2009 and thereafter remain subject to examination by the Internal Revenue Service. Subsequent Events Subsequent events have been evaluated through September 20, 2013, which is the date the financial statements were available to be issued. 8

Notes to Financial Statements Note 2 Concentration of Credit Risk HSGD maintains cash balances at one bank. Accounts at these banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. HSGD has a collateralization agreement with BBVA Compass Bank. Bank balances in excess of FDIC coverage are collaterally secured by pledged securities. Note 3 Grants Receivable The grants receivable balance represents an amount due from one federal funding source in the amount of $201,795. Note 4 Property and Equipment The balance consists of the following: Land $ 1,163,816 Leasehold improvements 2,810,230 Buildings 13,617,273 Equipment 3,667,284 Vehicles 775,348 Total property and equipment 22,033,951 Accumulated depreciation ( 8,589,098) Property and equipment, net $ 13,444,853 Note 5 Leases HSGD is committed under several operating leases related to its centers. Rent expense for these operating leases amounted to $443,315 for the year ended February 28, 2013. Future rental commitments under operating leases with terms of greater than one year are as follows: 2014 $ 417,794 2015 342,814 2016 221,085 2017 159,569 2018 159,568 Thereafter 228,780 Total $ 1,529,610 9

Notes to Financial Statements Note 6 Notes Payable Notes payable are as follows: Note payable to BBVA Compass Bank with monthly payments of approximately $4,469 per month, including interest at 4.27%. The note is due June 2014, and is collateralized by real estate. $ 627,460 Note payable to BBVA Compass Bank with monthly payments of approximately $9,889 per month, including interest at 4.27%. The note is due June 2014, and is collateralized by real estate. 1,388,358 Note payable to BBVA Compass Bank with monthly payments of approximately $22,298 per month, including interest at 4.27%. The note is due June 2014, and is collateralized by real estate. 3,130,380 Note payable to Bank of Texas at $1,890,000, with monthly payments of approximately $14,678 per month, including interest at 4.66%. This note is due August 2028, and is collateralized by real estate. 1,857,861 Notes payable 7,004,059 Current maturities ( 272,274) Notes payable, net of current maturities $ 6,731,785 Scheduled principal payments on notes payable at February 28, 2013, including current maturities, are summarized as follows: 2014 $ 272,274 2015 5,015,904 2016 95,635 2017 100,029 2018 105,083 Thereafter 1,415,134 Total $ 7,004,059 Certain notes described above are subject to performance and financial covenants. In May 2013, HSGD received a waiver for the financial covenants from BBVA Compass Bank. 10

Notes to Financial Statements Note 7 Delegate Expenses HSGD delegated a portion of the Head Start program for the year ended February 28, 2013, to two other nonprofit agencies. The expenditures of these agencies have been included in the accompanying statement of activities and total $4,661,451. Other independent auditors audited those agencies. Delegate expenses for the year ended February 28, 2013, were as follows: Salaries and employee benefits $ 3,782,995 Payroll taxes 243,807 Professional fees and contract services 31,455 Local travel 12,630 Occupancy 102,491 Telecommunications 19,997 Utilities 114,738 Office supplies 36,601 Program supplies 53,020 Food 13,200 Equipment and equipment rental 90,733 Repairs and maintenance 118,841 Insurance 33,911 Conferences 4,258 Other expenses 2,774 Total expenses $ 4,661,451 Note 8 Retirement Plan HSGD has a defined contribution retirement plan authorized under Section 403(b) of the Internal Revenue Code. The plan covers all employees of HSGD. HSGD matches the lesser of 50% of the employees contributions up to 6% or 3% of salary following the completion of one year of service or 1,000 hours within that 12-month period. Employer contributions charged to expense for the year ended February 28, 2013, were $181,421. Note 9 Commitments and Contingencies HSGD participates in a number of federally assisted and state grant programs. These programs are subject to program compliance audits by the grantors and their representatives. Any disallowed costs may constitute a liability of HSGD. HSGD is also required to match 25% of the grant funds received from the Head Start program with local resources. HSGD believes that it is in substantial compliance with all grant requirements, including those related to matching and disallowed costs, and any noncompliance, if any, would not be significant. 11

Notes to Financial Statements Note 10 Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes: Math and Science Curriculum $ 7,774 Early Learning Mentor Coaches Program 5657 Other 45,982 Total $ 59,413 12

Supplementary Information

Schedule A-1 Schedule of Program Activity Year Ended February 28, 2013 FEDERAL PROGRAMS Department of Agriculture Department of Health and Human Services 10.558 93.600 93.709 - ARRA Child Care Child Care ARRA Early 93.600 and Food Program Food Program Head Start Early Learning Mentor 93.709 - ARRA TX-057-0054 TX-057-0054 10.558 Program Head Start 93.600 Coaches Cluster Total 11/12 12/13 Subtotal 06CH0382/24 06CH0382/24 Subtotal 90SU0015/01 Subtotal (1) (2) (3) (4) (5) REVENUE AND SUPPORT Grant revenue $ 39,103,833 $ 952,708 $ 954,215 $ 1,906,923 $ 34,025,937 $ 3,095,151 $ 37,121,088 $ 67,287 $ 37,188,375 Other income 17,587 0 0 0 0 0 0 0 0 Interest income 245 0 0 0 0 0 0 0 0 In-kind contributions 6,049,327 0 0 0 9,433,999 824,462 10,258,461 0 10,258,461 Total Revenue 45,170,992 952,708 954,215 1,906,923 43,459,936 3,919,613 47,379,549 67,287 47,446,836 EXPENSES Salaries and employee benefits 22,870,040 478,897 479,654 958,551 19,505,951 2,283,834 21,789,785 52,324 21,842,109 Payroll taxes 1,474,372 34,461 34,516 68,977 1,247,731 149,832 1,397,563 3,402 1,400,965 Professional fees and contract services 3,147,732 0 0 0 3,133,135 4,189 3,137,324 7,540 3,144,864 Rent and storage 490,220 0 0 0 409,779 79,941 489,720 0 489,720 Mortgage principal 0 0 0 0 304,546 0 304,546 0 304,546 Utilities 604,538 0 0 0 537,695 66,843 604,538 0 604,538 Telecommunications 497,831 0 0 0 450,745 47,086 497,831 0 497,831 Local travel 92,704 0 0 0 77,580 11,336 88,916 1,851 90,767 Food 1,246,837 439,350 440,045 879,395 328,837 28,293 357,130 0 357,130 Program expenses 742,493 0 0 0 622,125 107,450 729,575 0 729,575 Office supplies 449,899 0 0 0 382,289 48,876 431,165 766 431,931 Minor equipment and equipment rental 467,851 0 0 0 435,697 21,724 457,421 0 457,421 Capitalized expenses 0 0 0 0 368,650 115,385 484,035 0 484,035 Repairs and maintenance 749,269 0 0 0 690,218 59,051 749,269 0 749,269 Vehicle expenses 60,119 0 0 0 59,592 0 59,592 0 59,592 Insurance 116,514 0 0 0 116,514 0 116,514 0 116,514 Interest 393,770 0 0 0 393,770 0 393,770 0 393,770 Out of county travel 101,988 0 0 0 63,545 34,240 97,785 1,159 98,944 Printing and publications 13,564 0 0 0 11,417 0 11,417 0 11,417 Conference and membership fees 125,294 0 0 0 91,159 33,298 124,457 245 124,702 Depreciation and amortization 1,006,698 0 0 0 0 0 0 0 0 Other expenses 140,074 0 0 0 133,511 3,773 137,284 0 137,284 Delegate expenses 4,661,451 0 0 0 4,661,451 0 4,661,451 0 4,661,451 In-kind expenses 6,028,327 0 0 0 9,433,999 824,462 10,258,461 0 10,258,461 Total Expenses 45,481,585 952,708 954,215 1,906,923 43,459,936 3,919,613 47,379,549 67,287 47,446,836 Change in Net Assets ( 310,593) 0 0 0 0 0 0 0 0 Net assets - Beginning of year 6,048,219 0 0 0 0 0 0 0 0 NET ASSETS - END OF YEAR $ 5,737,626 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditor's Report. 13

Schedule A-2 Schedule of Program Activity Year Ended February 28, 2013 FEDERAL STATE AND LOCAL PROGRAMS DISCRETIONARY Math & Early Learning Total Total Criminal Science Mentor Coaches State and Federal Justice Curriculum Program Local GAAP TOTAL Programs 2155603 Pilot 2011-12-603 Programs Adjustments PROGRAMS Corporate (6) (7) (8) (9) (10) REVENUE AND SUPPORT Grant revenue $ 39,095,298 $ 7,035 $ 1,500 $ 0 $ 8,535 $ 0 $ 39,103,833 $ 0 Other income 0 0 0 0 0 0 0 17,587 Interest income 0 0 0 0 0 0 0 245 In-kind contributions 10,258,461 0 0 0 0 ( 4,209,134) 6,049,327 0 Total Revenue 49,353,759 7,035 1,500 0 8,535 ( 4,209,134) 45,153,160 17,832 EXPENSES Salaries and employee benefits 22,800,660 2,286 35,523 31,571 69,380 0 22,870,040 0 Payroll taxes 1,469,942 170 2,212 2,048 4,430 0 1,474,372 0 Professional fees and contract services 3,144,864 2,550 0 0 2,550 0 3,147,414 318 Rent and storage 489,720 0 0 0 0 0 489,720 500 Mortgage principal 304,546 0 0 0 0 ( 304,546) 0 0 Utilities 604,538 0 0 0 0 0 604,538 0 Telecommunications 497,831 0 0 0 0 0 497,831 0 Local travel 90,767 0 1,213 724 1,937 0 92,704 0 Food 1,236,525 0 0 0 0 0 1,236,525 10,312 Program expenses 729,575 1,944 2,571 0 4,515 0 734,090 8,403 Office supplies 431,931 0 705 0 705 0 432,636 17,263 Minor equipment and equipment rental 457,421 0 60 0 60 0 457,481 10,370 Capitalized expenses 484,035 0 0 0 0 ( 484,035) 0 0 Repairs and maintenance 749,269 0 0 0 0 0 749,269 0 Vehicle expenses 59,592 0 0 0 0 0 59,592 527 Insurance 116,514 0 0 0 0 0 116,514 0 Interest 393,770 0 0 0 0 0 393,770 0 Out of county travel 98,944 0 3,011 0 3,011 0 101,955 33 Printing and publications 11,417 0 0 0 0 0 11,417 2,147 Conference and membership fees 124,702 85 240 0 325 0 125,027 267 Depreciation and amortization 0 0 0 0 0 0 0 1,006,698 Other expenses 137,284 0 0 0 0 0 137,284 2,790 Delegate expenses 4,661,451 0 0 0 0 0 4,661,451 0 In-kind expenses 10,258,461 0 0 0 0 ( 4,230,134) 6,028,327 0 Total Expenses 49,353,759 7,035 45,535 34,343 86,913 ( 5,018,715) 44,421,957 1,059,628 Change in Net Assets 0 0 ( 44,035) ( 34,343) ( 78,378) 809,581 731,203 ( 1,041,796) Net assets - Beginning of year 0 0 51,809 40,000 91,809 7,128,640 7,220,449 ( 1,172,230) NET ASSETS - END OF YEAR $ 0 $ 0 $ 7,774 $ 5,657 $ 13,431 $ 7,938,221 $ 7,951,652 ($ 2,214,026) See Independent Auditor's Report. 14

Notes to the Schedule of Program Activity Note 1 Head Start Nonfederal Matching Requirement The Head Start program funded by DHHS requires that the program receive a nonfederal share equal to 25% of total Head Start expenses. HSGD uses the following Head Start expenditures paid for from its nonfederal programs to fulfill its matching requirements as follows: In-kind $ 10,258,461 Criminal Justice (A-2) 7,035 Math & Science Curriculum Pilot (A-2) 24,091 Early Learning Mentor Coaches (A-2) 34,343 Corporate Other Grants (A-2) 2,598 Total match (A-1) $ 10,326,528 Note 2 ARRA Early Learning Mentor Coaches Nonfederal Matching Requirement The ARRA Early Learning Mentor Coaches program funded by DHHS requires that the program receive a nonfederal share equal to 25% of total ARRA Early Learning Mentor Coaches expenses. HSGD uses the following Math & Science Curriculum Pilot expenditures paid for from its nonfederal programs to fulfill its matching requirements as follows: Math & Science Curriculum Pilot (A-2) $ 21,444 Total match $ 21,444 See Independent Auditor s Report. 15

Schedule B Schedule of Expenditures of Federal, State, and Local Awards and List of Programs Year Ended February 28, 2013 Federal Grantor/ CFDA Funding Source/ Federal Program Title Number Pass-Through Entity Program Year Expenditures DEPARTMENT OF AGRICULTURE ( 1) Child Care Food Program 10.558 Texas Health and Human 10/01/11-09/30/12 $ 952,708 TX-057-0054 11/12 Services Commission ( 2) Child Care Food Program Texas Health and Human 10/01/12-09/30/13 954,215 TX-057-0054 12/13 Services Commission Total Federal Expenditures CFDA 10.558 1,906,923 DEPARTMENT OF HEALTH AND HUMAN SERVICES ( 3) Head Start Program 06CH0382/24 93.600 U.S. Department of Health and 03/01/12-02/28/13 34,025,937 (includes delegate expenses of $4,661,451) Human Services ( 4) Early Head Start U.S. Department of Health and 03/01/12-02/28/13 3,095,151 06CH0382/24 Human Services Total Federal Expenditures CFDA 93.600 37,121,088 ( 5) ARRA Early Learning Mentor Coaches 93.709-ARRA U.S. Department of Health and 09/29/10-08/31/12 67,287 90SU0015/01 Human Services Total Cluster 93.600 and 93.709-ARRA 37,188,375 TOTAL FEDERAL EXPENDITURES $ 39,095,298 Other STATE AND LOCAL PROGRAMS Expenditures ( 6) Criminal Justice State of Texas - Office of 09/01/11-08/31/12 $ 7,035 2155603 the Governor, Criminal Justice Division ( 7) Math & Science Curriculum Pilot CitiGroup, ExxonMobil, Greater 03/01/12-05/31/13 45,535 Texas Foundation, & TI Foundation ( 8) Early Learning Mentor Coaches Program Rees-Jones Foundation 12/21/11-04/30/13 34,343 2011-12-603 TOTAL STATE AND LOCAL EXPENDITURES $ 86,913 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ADJUSTMENTS ( 9) GAAP Adjustments N/A 03/01/12-02/28/13 ($ 5,018,715) DISCRETIONARY ACTIVITY ( 10) Corporate N/A 03/01/12-02/28/13 $ 1,059,628 Notes to Schedule of Expenditures of Federal, State, and Local Awards and List of Programs Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal grant activity of Head Start of Greater Dallas, Inc. under programs of the federal government for the year ended February 28, 2013. The information in this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of Head Start of Greater Dallas, Inc., it is not intended to and does not present the financial position, changes in net assets or cash flows of Head Start of Greater Dallas, Inc. Note 2 - Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through entity identifying numbers are presented where available. See Independent Auditor's Report. 16

Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Board of Directors Head Start of Greater Dallas, Inc. Dallas, Texas We have audited, in accordance with the auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of Head Start of Greater Dallas, Inc. (a nonprofit organization), which comprise the statement of financial position as of February 28, 2013, and the related statement of activities and cash flows for the year ended February 28, 2013, and the related notes to the financial statements, and have issued our report thereon dated September 20, 2013. Internal Control Over Financial Reporting In planning and performing our audit, we considered Head Start of Greater Dallas, Inc.'s internal control over financial reporting (internal control) to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 17

Compliance and Other Matters As part of obtaining reasonable assurance about whether Head Start of Greater Dallas, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Head Start of Greater Dallas, Inc. in separate letter dated September 20, 2013. Purpose of this Report The purpose of this report is solely to describe the scope of our testing on internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Head Start of Greater Dallas, Inc. s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Wipfli LLP Madison, Wisconsin September 20, 2013 18

Independent Auditor s Report on Compliance For Each Major Federal Program and on Internal Control Over Compliance Board of Directors Head Start of Greater Dallas, Inc. Dallas, Texas Report on Compliance for Each Major Federal Program We have audited Head Start of Greater Dallas, Inc. s (a nonprofit organization) compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement and the State of Texas Single Audit Circular that could have a direct and material effect on each of its major federal programs for the year ended February 28, 2013. Head Start of Greater Dallas, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility for Compliance Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Head Start of Greater Dallas, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and the State of Texas Single Audit Circular. Those standards, OMB Circular A-133 and the Circular, require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Head Start of Greater Dallas, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination on Head Start of Greater Dallas, Inc. s compliance. Opinion In our opinion, Head Start of Greater Dallas, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended February 28, 2013. 19

Other Matters Report on Internal Control Over Compliance The management of Head Start of Greater Dallas, Inc. is responsible for establishing and maintaining effective internal control over compliance ( internal control ) with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Head Start of Greater Dallas, Inc. s internal control with the types of requirements that could have a direct and material effect on a major federal program to determine our auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance in accordance with OMB Circular A-133 and the Circular, but not for the purpose of expressing an opinion on the effectiveness of internal control. Accordingly, we do not express an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control is a deficiency, or a combination of deficiencies, in internal control with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. However, we identified a certain deficiency in internal control that we consider to be a significant deficiency as described in the accompanying schedule of findings and questioned costs as item 2013-001. Head Start of Greater Dallas, Inc. s response to the internal control finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Head Start of Greater Dallas, Inc. s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control is solely to describe the scope of our testing of internal control and the results of that testing being based on the requirements of OMB Circular A-133 and the Circular. Accordingly, this report is not suitable for any other purpose. Wipfli LLP Madison, Wisconsin September 20, 2013 20

Schedule of Findings and Questioned Costs A. Summary of Auditor s Results 1. The auditor s report expresses an unmodified opinion on the financial statements of Head Start of Greater Dallas, Inc. 2. No significant deficiencies relating to the audit of the financial statements are reported in the Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters. 3. No instances of noncompliance material to the financial statements of Head Start of Greater Dallas, Inc. were disclosed during the audit. 4. There was one significant deficiency disclosed during the audit of the major federal and major state award programs as reported in the Independent Auditor s Report on Compliance For Each Major Federal Program and on Internal Control Over Compliance. 5. The auditor s report on compliance for the major federal award programs for Head Start of Greater Dallas, Inc. expresses an unmodified opinion. 6. There was one audit finding relative to the major federal award programs for Head Start of Greater Dallas, Inc. 7. The programs tested as major federal programs were the U.S Department of Agriculture, CFDA #10.558 Child and Adult Care Food Program, and the U.S. Department of Health and Human Services cluster, CFDA #93.600 Head Start and #93.709-ARRA Early Head Start. 8. The threshold for distinguishing Types A and B programs was $1,172,859. 9. Head Start of Greater Dallas, Inc. was determined to be a low-risk auditee. B. Findings Financial Statements Audit None 21

Schedule of Findings and Questioned Costs C. Findings and Questioned Costs - Major Federal Award Program Audit DEPARTMENT OF HEALTH AND HUMAN SERVICES HEAD START - CFDA #93.600 GRANT #: 06CH0382/24 GRANT PERIOD: MARCH 1, 2012 THROUGH FEBRUARY 28, 2013 QUESTIONED COSTS: None FINDING: INTERNAL CONTROL OVER COMPLIANCE WITH IN-KIND REGULATIONS (2013-001) Condition During the audit, there were several instances where Head Start of Greater Dallas, Inc. was unable to provide records from its system for Wipfli s review and verification of in-kind volunteer take home activity time and activities performed that benefitted the program. Criteria DHHS s Regulation 45 CFR Section 74.23: Effect a. To be accepted, all cost sharing or matching contributions, including cash and third party in-kind, shall meet all of the following criteria: 1. Are verifiable from the recipient s records. 3. Are necessary and reasonable for proper and efficient accomplishment of project or program objectives. 4. Are allowable under the applicable cost principles. 7. Conform to other provisions of this Circular, as applicable. As a result of our inability to verify the in-kind information for various centers a significant deficiency exists in internal control over the recording of in-kind. Amounts related to in-kind volunteer take home activity have not been included in the in-kind amounts reported in the financial statements. Head Start of Greater Dallas, Inc. has adequate in-kind to meet the required match amount. 22

Schedule of Findings and Questioned Costs C. Findings and Questioned Costs - Major Federal Award Program Audit (Continued) Management Response HSGD has discontinued the inclusion of volunteer in-kind take-home activity related to curriculum toward meeting the agency s matching requirement. The agency will continue to review and verify volunteer in-kind activity to ensure that in-kind counted complies with Department of Health and Human Services Regulation 45 CFR Section 74:23 which requires that it: is verifiable from recipient s records; is necessary and reasonable for proper and efficient accomplishment of project or program objectives; is allowable under the applicable cost principles; and conforms to other provisions of this Circular, as applicable. We will continue to review and evaluate the effectiveness of these system modifications and related procedures to determine the risk of misstatement. D. Prior Year Findings None 23